Seoul City Threatens To Crush Uber

Sharing-economy flagship and global investor darling Uber found itself on Monday facing an outright ban in a major global capital.

But while Uber is facing a barrage of regulatory problems in cities worldwide, the irony in this case is that the capital threatening the move is a metropolis that likes to portray itself as a global benchmark for futuristic systems and high-tech business: Seoul, South Korea.

Uber, based in San Fransisco and valued at over US$18 billion, offers a ride-sharing application that connects passengers with drivers. However, it has ignited fury among traditional taxi operators worldwide, who see it as a threat to their own business, and has found itself floundering in a legal grey area as a “transport broker.” Currently, it only runs a pilot luxury vehicle service in Korea, but may find even these nascent services quashed in the capital of a nation that is home to tech flagships Samsung Electronics and LG Electronics, and which boasts the world’s leading Internet and mobile telephone infrastructures.

Seoul, which has been in discussions with local taxi organizations, released a statement Monday entitled, “Seoul City’s Powerful Response to Illegal Call Taxi App Uber.”

The statement urged citizens to “exercise sensible judgment” in using Uber services, which it said violated sub-sections of the Passenger Safety Act on driver training and passenger insurance. Seoul filed a complaint with police in May, but prosecutors suspended action due to lack of evidence, the statement read. Seoul will request a new police investigation, the statement continued, adding that the City is, “…considering an option to shut down uber-related mobile applications.” It added that it was proposing new regulations to the appropriate ministry to outlaw Uber.

Uber returned fire with its own strongly-worded statement.

“The statement issued by the Seoul City Taxi & Logistics Division to attack Uber…shows how out of touch the department is with the ‘smart city’ movement,” Uber fumed. “While other global leaders, including London, Washington D.C., Singapore and Shanghai have embraced forward thinking technologies and their role in improving consumer services, comments like these show Seoul is in danger of remaining trapped in the past and getting left behind by the global ‘sharing economy’ movement.”

The company also pointed out what it said were factual inaccuracies in Seoul City’s descriptions of its services.

The controversy comes at a time when the government of President Park Geun-hye has prioritized the “creative economy” as one strategy to wean South Korea away from its heavy dependence on conglomerates by kick-starting entrepreneurial ventures. And with Korea boasting such an impressive infrastructure for ventures to operate on, the eco-system is in place for such firms to thrive.

But while Korea’s high-tech hardware is impressive, Park has discovered that its software is less so. In March, she slammed the bureaucratization strangling its cyberscape: She had discovered that overseas would-be customers could not buy products from South Korean websites because Korean regulation forces local online mall operators to use Active-X plug-ins for buyer identification.

“South Korea claims to be pursuing the high-tech, smartphone economy, but the reality is that its legal system and mindset holds it back,” said a person familiar with Uber’s operations in Korea. “This [Uber situation] is a case in point.”

And even if Park is behind the “creative economy” and related deregulation, Seoul City is headed by the left-leaning administration of Mayor Park Won-soon. This suggests that an older, top-down or even socialist Korean habit may just be at work in the Uber case.

In the 1960s and ‘70s, South Korea’s development paradigm was founded on tight cooperation between industry and government. Government ordered businesses which sectors to invest in, but lacking R&D budgets, many firms became notorious copycats. Meanwhile, government provided an appropriate incubation environment, by limiting foreign competitors from entering the market, while incentivizing Korean firms to acquire competitiveness in global markets.

That paradigm has now largely passed. Korean companies are themselves churning out patents, hence the nation is no longer an intellectual property black hole. And since the Asian financial crisis in 1997-8, most sectors have been thrown open to foreign competition.

This makes Seoul City’s statement appear retroactive.

Firstly, Uber comes under criticism for being a foreign company: “There is the issue of national wealth leaving the country since the [Uber] payment immediately is registered in a system based in the Netherlands,” the statement read.

Secondly, the City admits that it is preparing an Uber-like app of its own. “Seoul government is planning to provide a taxi-call service through a mobile application to offer user-friendly convenient taxi services to citizens,” its release said. “The application will be launched in December.”

So is Korea’s clock being turned back?

“Imagine a nation that claims to be assuming a ‘creative economy’ expelling the flagship creative economy brand, and replacing its service with its own government-controlled copycat,” said the source. “It is laughable.”

But if it finds itself shoved out of a market that boasts some of the world’s highest smartphone penetration rates and keenest earlier adopters of new technologies and services, Uber’s laughter may ring hollow.